Low earners to miss out on £78m a year due to net pay anomaly

Written by Oliver Wade

With the personal allowance set to increase to £12,500 in April 2019, the amount of tax relief being missed for those savers in net pay schemes will increase to £64 per year, new research has revealed.

Though the increase in the personal allowance is good news for many lower paid workers, it will result in an increase in both the number of people affected by the net pay anomaly and the amount of tax relief they will miss out on each year.

Now Pensions highlighted that, in the current tax year, the maximum amount that a saver in a net pay scheme could miss out on is £34.91. However, for the 2019/20 tax year, this figure will rise to £64 due to the increase in the personal allowance and the increase in auto-enrolment minimum contributions, rising from 5 per cent of qualified earnings to 8 per cent.

Figures from HM Revenue & Customs (HMRC) indicated that in 2015/16, 1.22 million people could have been affected by net pay anomaly, including those that are automatically enrolled as well as workers already in occupational schemes.

Now Pensions noted that the figure will rise, “even on this conservative estimate”, lower paid workers across the country could be missing out on up to £78m of tax relief for the 2019/20 tax year.

Commenting, Now Pensions CEO Troy Clutterbuck said: “The increase in the personal allowance, combined with the rise of auto enrolment minimum contributions will exacerbate this nasty anomaly in the tax system.

“It’s not right that some low earners are missing out on a government top up simply due to the type of pension scheme they are in and the government need to take urgent action to address this inequality.”

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